Central Valley Real Estate

JP Morgan Chase (& Wa-Mu) Foreclosures Frozen For 90 Days

Business Week magazine reported yesterday that JP Morgan Chase will be placing any homes into foreclosure during the next 90 days. This unprecedented move is part of a plan to modify mortgage loan terms for 400,000 homeowners that account for some $70 billion in loans. Homeowners that signed up for "pay-option" loans with World Savings (later bought out by Washington Mutual) or from Washington Mutual (recently acquired by JP Morgan Chase) will be offered new loan terms involving reduced interest rates and/or principal balances.

JP Morgan Chase customers in delinquency or with a "pay option" ARM mortgage should contact the bank's customer service department to inquire about further details.

Massive inventory decline could spell bottom of market

Because Econ 101 teaches us that lower supply leads to higher prices, the decline in housing inventory signals that we are getting ever-closer to the proverbial "bottom of the market," if we're not there already.

(CLICK ON TABLE TO SEE A FULL-SIZE IMAGE)

The Wall Street Journal today reported on a survey it conducted of 28 metropolitan areas across the country, to see where housing is headed. The Sacramento area, whose MLS includes Stanislaus County, had the largest decline in housing supply than any other area in the study, at 32.1% fewer homes listed for sale in June 2008 compared to the year-ago period. And that was just looking at June inventory numbers.

Inventory is in a noticable decline in most parts of Stanislaus County, as confirmed by these figures. Two key questions are: what is causing this trend, and what does it mean for real estate activity going forward?

Inventory has been shrinking in this area for three reasons:

(1) First and foremost, prices have declined to the point where buyers with area incomes can now afford to purchase them, and there is significant interest to purchase homes when you can find a good home in the mid- to upper-$100s.

(2) Increased loan modifications and workout plans have allowed more troubled homeowners to stay in their homes, rather than lose them to foreclosures, which all end up as future bank-owned homes for sale.

(3) The flood of short sale listings has finally begun to decrease. There are several factors that help to explain this trend, but the reality is that the short sale market of 2007 did not result in many successful sales. This means that many homeowners who tried to sell, real estate agents that tried to negotiate them, and homebuyers looking at them, all ended up, in many cases, wasting their time. Unfortunately, the successful close rate of short sales is abysmal, due mostly to slow response times and unreasonable terms by banks who would have to agree to the short sale terms. As a result, many home buyers have chosen to skip over short sale listings. Many real estate agents have been much more choosy about which short sale listings to take on--after all, if it won't sell, then why spend time, money, and effort trying to do it? And many homeowners have decided either to try to do a loan workout and stay in the home or just walk away from it without even trying.

But getting back to the trend of declining inventory: we all know that decreased supply of any asset or commodity results in future price increase. This is one of the basic laws of economics, and it applies in any market, industry, and situation. So if this trend continues, expect to see prices begin to rise from here on out.

California Association of Realtors 2009 Real Estate Forecast

Every October, the California Association of Realtors (C.A.R.) publishes their annual real estate forecast. It is really a wealth of information, containing all sorts of general economic data as well as every conceivable data point related to real estate. In addition to state-level detail, they also have regional and county-level data that is particularly helpful. They really should charge for this kind of thing!

The 134-page PDF presentation can be viewed/downloaded here: Download car_2009_real_estate_forecast.pdf

If you want to watch a 52-minute streaming video of the actual live presentation, you can view it on the C.A.R. website homepage, at www.car.org.

California Foreclosure Timelines

I found this great article on the website for the California Association of Realtors, which details exactly how the foreclosure process works in the state of California.

Analyzing the Steps of Foreclosure
-By Sara Sutachan, Senior Research Analyst, California Association of Realtors

Foreclosures are at an all time high according to various data sources both nationally and in California. Based on preliminary calculations by the CALIFORNIA ASSOCIATION OF REALTORS®, the number of foreclosures in the state is expected to exceed 220,000 for the year, reaching a peak in 2008 and remaining elevated in the first half of 2009. As such, home prices will continue to face downward pressure through the first or second quarters of next year because of the presence of foreclosures/distressed sales. 

Given the recent rise in the level of foreclosures and the impact they have on the current real estate market, it is worth reviewing the steps in the foreclosure process in the state of California. The process begins when a homeowner has missed a payment or two, at which time the lender may choose to start the foreclosure process. This usually happens in 45 to 60 days but the decision to begin the foreclosure process is at the lender’s discretion and may vary.  Once the lender decides to begin the foreclosure process, the lender is required to file a 30-Day Notice of Intent to file a Notice of Default (NOD).

The 30-Day Notice is a rule put into place by Senate bill 1137 in July of this year and applies to owner-occupied residential properties sold between January 1^st, 2003 and December 31^st, 2007. After the 30 days are up, the lender can file an official NOD.  Lenders of residential properties that do not fall under the Senate bill can simply file an NOD after the first missed payment, again the actual time they file an NOD is at the lender’s discretion so may vary. The lender provides information on how to reinstate the loan and the homeowner has not less than three months from the NOD filing to do so.

If the homeowner does not act by end of three months after the NOD is filed, the lender can proceed with the foreclosure.  The lender must publish a Notice of Trustee’s Sale, which is posted for 20-31 days (the law requires lenders to post the sale for at least 20 days but most usually file 31 days before the sale because of an IRS notice requirement). In all, the homeowner has a little over three months to bring their loan into good standing from the time an NOD is filed on their property. In addition to the time frame above the homeowner can, by law, bring their loan current until five days prior to the Trustee Sale. Even after the deadline to cure a default is filed, the homeowner still has an option to pay the entire loan amount up to the time of the Trustee Sale. However, once the Trustee Sale is recorded, the property is transferred to a new owner, in most cases the lender itself, and all bets are off for the homeowner. The property is then owned by the lender and becomes a real-estate owned or REO property.

The elapsed time from the first sign of financial distress to the final Trustee Sale may range anywhere between four and seven months, during which the homeowner can take steps to avoid foreclosure. The two most common ways of avoiding foreclosure are to negotiate a plan with the lender or negotiate a short sale (selling the home for less than what is owed to the lending institution). Regardless of how a homeowner’s mortgage problems are ultimately resolved, the foreclosure process tends to be lengthy and stressful, not to mention costly for all of those involved. The lender has incentives to work out a deal with homeowners if it is viable for them because the foreclosure process costs time and money in terms of legal fees, carrying costs, maintenance costs, and the burden of selling the property. The first thing for homeowners to do when they are facing difficulties paying their mortgage is to call their lender as soon as there is a problem. This early communication is key to avoiding foreclosure.

June 2008 Update: When is the right time to buy an investment home?

(NOTE: This post is geared towards investors ONLY, because it focuses solely on issues of price and timing. If you are buying a home for yourself, you'll want to consider other factors as well, such as the school boundaries, your ideal floorplan, the size of the backyard, etc. If you think of buying your own home just in terms of an investment, you may be sorely disappointed.)

When is the right time to buy an investment home(s)?

Here’s my thought about investment purchase timing: using metrics of inventory/sales and prices, I’m observing that inventory is starting to flatten, sales are definitely rising, and prices are still falling but only very slightly. I think we’re about at the bottom as far as prices go. However, there are some unknowns.

• Perhaps foreclosures continue to come to market and we run out of first-time homebuyers. It’s hard to quantify but an important question to consider: which will we run out of first? Foreclosures? Or first-time buyers? If we run out of foreclosures first, then we may be at the bottom of the market right now (though we won’t know for sure for several months from now). But if we run out of first-time homebuyers first, then expect prices to take another step southwards. It’s like an endurance contest, and I’m not sure who’ll win.
• If perception becomes reality, then expect price declines to stop soon. With more and more buyers deciding that this (2008) is the time to buy, they may absorb every bit of inventory as it comes available on the market. I’m seeing some of this already. I have twice as many pendings as I have listings, and most of the still-actives are either overpriced REO listings from unrealistic REO sellers or else homes that nobody seems to want. But the good stuff is going quick, often with multiple offers and with a lot of them over asking price.

Here’s the thing: right now, banks are going off of recent comparable sales which show the trend of lower prices. When pendings are lower still, we have a declining market. But I’m beginning to notice that the newer the pending date, the fewer days on market and better list prices they seem to have. In other words, there may be a potential for arbitrage purchasing right now due to the delay in reliable, confirmed data.

Because it may take another 4-6 months to for today’s listings and pendings to be reflected as sold comparables, during this time many REO sellers will continue with the status quo of declining prices. But once they realize they don’t need to price it lower, because that stuff sold in a week over list price with multiple offers, then the day of the price declines will be gone.

Another question becomes: what then? Will buyers not want to play anymore, walk out on the market and give sellers another dry spell with few sales, and pressure sellers to come down in price again? Or will the herd mentality become “prices are rising again, therefore I should hurry up and buy,” which would sustain further price increases?

One thing I feel pretty confident about: I don’t think we’ll have another 10-20% drop in starter home prices ($150K--$250K). We may on larger, luxury homes, but I think increased demand at the low end is showing enough resistance that it won’t be dropping much more.

Of course, I could be totally wrong… after all, prices went a lot higher and lasted longer than anyone thought, too…

Are There Any Good, Competent Agents in Modesto?

I am a member of Trulia Voices, which is a forum where individuals can ask real estate questions to other members and get their responses. I saw a question today that I really liked, and wanted to post both it and my response. It is a common concern on buyers minds, and also is a reflection of our (again) changing market. Enjoy...

Trulia Voices--Modesto
Question:

are there any good, competent agents in modest, ca that know their areas and that will honestly tell you how?
i am not sure how many, but my gut feeling is that our current realtor is telling us that just to get a higher commission. also he never seems to be able to find the houses. i have to either plug in the address to my gps or i have to have my husband drive while i figure out the map. i am sooooooooooooooo frustrated!! can you tell??

My Answer:

While even the best of agents don't know every street in town like the back of their hand, your frustration comes through clearly. In my opinion, the years of experience don't by themselves dictate who is competent and who is not. Rather, it's the diligence and commitment they give to their profession, to the market, and to their clients. And unfortunately, there are a very large percentage of agents who don't seem to match the expectations of the very clients that they should be guiding and representing. So I totally feel your pain. That is much of the reason I became an agent; I felt I could do a better job than the agent on my first house.

The market is changing quickly, and I'm seeing it happen right before my eyes. And I don't know if this is the answer you're looking for (and it all depends on the situation and specifics), but as an agent that frequently works as a seller's agent representing bank-owned homes, I see the kinds of offers that buyers make on my homes, and they sometimes vary widely. And I also talk to agents frequently who express their frustration to me about how their client didn't want to make a sufficiently high offer to get the house. And guess what happens? The buyer makes the offer they want to make, and they lose the house to someone else who was wiling to pay a higher price. And with prices being as low as they are right now, there are more buyers out there than you may suspect. More buyers means more competition, and more competition means more homes sell more quickly and with multiple offers and (often times) for above the asking price! This may sound strange given the constant headlines you see and hear, but it is nonetheless true. I've had five homes go into contract this week, and four of them were with multiple offers and above the asking price.

To explore the possibility of the agent just saying something to "get a higher commission." For every $10,000 higher of an offer that you may make, a typical 3% commission is $300, and that's before splitting it with the broker and paying taxes. So there's really not much incentive for the buyer's agent to get the client to bump up their offer--it may really only be another $100-$200 in their pocket. You might fear the agent is just trying to push you into the first house you see to make the commission EASY, but I doubt it's to "get a higher commission."

Then there's the possibility you really do have an incompetent or unethical agent. There are some out there--more than I'd like to admit. One of the best ways to determine that for yourself is by getting a second or third opinion, just as you might do on a health concern. (Like the time my first visit to a new dentist who told me I had 12 cavities. I got a second opinion from another dentist who said I had none at all.) That is probably the best way to put your mind at ease. I would encourage you to speak to a couple of other agents that are referred to you through friends, family or coworkers. Be upfront with those other agents and make it clear you are currently working with another agent at the time, but that you just want to hear another perspective. Once they know the sales game is off, it removes the temptation to tell you what they think you want to hear.

If you wish to contact me for a second opinion, I'd be happy to talk with you. I think we'd get along great. Just so you know, I won't be trying to win your business, as I don't have time available to take on new buyer clients at the moment. I have a great buyer's agent who works with me, but that'd be your call. I'm happy to just be a resource, because you need to put your mind at ease. A home purchase is way too big of a purchase decision for you to be struggling with this kind of doubt.

I wish you the best,
Aaron Lewis
The Lewis Team at Prudential California Realty
209-633-2727 direct
http://www.weworkharder.com

If You're Gonna Be Angry, Be Angry At Everyone

I read a community editorial in our local paper, The Modesto Bee, on Jan. 23 that was very insightful. Rather than blame mortgage loan brokers for this whole mess (as I am sometimes prone to do), or blame loan brokers AND real estate agents (as many others do), the reality is that we all sowed the seeds of our own real estate implosion.

I would have just provided the link to the article, but some of my Bee links are requiring a username and password to see the article, and I think the author Dick Hagerty would want to be heard. I couldn't have said it better myself.

Who's to blame for subprime mortgage crisis? Everybody

by Dick Hagerty

The subprime crisis in the real estate market has been especially harsh in our Central Valley region. Many pundits have quickly jumped on the bandwagon, assigning blame to different players in the home building industry.

Having spent more than 30 years immersed in this industry, in this market, I have a special vantage point to assess just who and what might be to blame for our current sad state of affairs.

My conclusion: Everyone in the entire loop was greedy, and the blame spreads across the spectrum.

The land seller (generally a farmer) was greedy and ran land costs up, in some cases more than $500,000 per acre. That same land today would be hard-pressed to fetch $50,000.

The developer (that's me, folks) was greedy, and marked up the price of finished lots to incredible numbers -- which the greedy builder was more than willing to pay, much to his later regret.

Cities, counties and schools -- they all got greedy and jacked up development fees to levels that simply boggle the mind, given today's values.

Subcontractors and material suppliers got on the bandwagon and raised prices and profit margins to record proportions.

Real estate brokers and sales staffs aggressively oversold the promise of never-ending upward price spirals to buyers who often could not afford the homes being hyped.

The mortgage and money industry is especially culpable. Mortgage brokers pushed hard to sell inappropriate and misleading products that eventually would ratchet up to very high monthly charges.

And Wall Street, an industry that hates real estate because it sucks capital from the investment world, fell right into the trap and started marketing packages of loans as a new investment vehicle. They did this seemingly with blinders on, because due diligence in evaluating the underlying quality of the loans just flew out of the window. Blocks of mortgages became the new hot item on the stock exchanges, regardless of the integrity of the product.

All of the above has been noted and pilloried by the press and by other observers.

But I believe that equal blame lies in the lap of the buyers. Yes, I, too, agonize over the number of unfortunate homeowners who are losing their dwellings; it truly is a tragedy.

However, many of those same homeowners bought houses well beyond their means on the belief (or perhaps the hope) that prices would continue to skyrocket. When they did not, the buyers found themselves hopelessly buried.

Easy money terms in the adjustable rate mortgages made this game just too easy to enter, and in the meltdown, values simply vaporized before the buyers' eyes.

The sad reality is that a home is not an investment; it should be viewed as a place to live. Nor is it a piggy bank which may be regularly raided through creative refinancing, which provides easy cash for all the consumer desires of Mr. and Mrs. Homeowner.

Sad to say, we were all in this together, and to ascribe guilt and blame to any single player is not appropriate. In the end, greed prevailed, and we are all losers for it.

Hey, Bargain Hunters! Where Are You?

As the Briefing.com assessment of today's stock market performance explains, "There are volatile markets and then there are volatile markets.  Wednesday's session was the latter variety, which is to say it was truly volatile.  To wit, the swing in the S&P 500 between its low of the day, reached around 12:45 p.m. ET, and its high of the day, reached around 3:50 p.m. ET, was 69 points or 5.4%."

A 5.4% swing in just one day--not for one particular stock, but for the entire S&P 500--is just unimaginable. And yet, it just happened. Today.

Why did it happen? And what's it got to do with local real estate?

Peter Cardillo, chief market economist at Avalon Partners, explained today's stock market performance: "There does come a point and time when the market itself recognizes that it got out of hand, and that is when bargain-hunters can come in."

It's just a matter of time before our local real estate market also realizes that it is out of hand too, "and that is when the [real estate] bargain-hunters can come in."

A few cases in point:  this bank-owned Patterson home at 544 Peregrine Ave was built in 2001, has 5 bedrooms, 3 baths, 3-car garage, 4041 sq. ft, and was asking $250,000 before going into contract about a week ago. That's a $62/sq. ft. asking price! And in case you were wondering, it has a very nice (though dead) landscaped backyard, cherry/maple cabinets and granite counters.

In case you were wondering if you missed the boat, this second bank-owned home is just down the road in Newman at 682 Hagerman Peak Drive that was built in 2005, with 5 bedrooms, 3 baths, 3-car attached garage and 4117 sq. ft. asking $329,000. That's still less than $80/sq. ft., and that's just a starting asking price--it's only been listed for 14 days.

So bargain hunters, you need to wake up and realize this for what it is--complete and utter mayhem. If you agree that the market has gotten out of hand, you can now come in.

California Foreclosure Activity Continues to Increase

There's no sugar-coating it any more--the housing market is in dire straits. As a real estate agent, I really want to be as optimistic as possible. And yet, that's a disservice to those who need to know the reality of what's going on.

In fact, one of my favorite quotes that I have on my desk is from Jack Welch, the legendary CEO of General Electric. He says, "face reality as it is, not as you want it to be." Very relevant advice for current real estate conditions.

So with that in mind, I will no longer be withholding the bad news from the good. I will always be keeping an eye out for editorial bias and spin, but facts are facts and cannot be denied. Enjoy.

California foreclosure activity still rising

Pool of at-risk loans getting larger

Tuesday, January 22, 2008

Inman News

The number of mortgage default notices filed against California homeowners jumped last quarter to its highest level in more than 15 years, a real estate information service reported.

Lending institutions sent homeowners 81,550 default notices during the October-to-December period. That was up by 12.4 percent from 72,571 the previous quarter, and up 114.6 percent from 37,994 for fourth-quarter 2006, according to DataQuick Information Systems.

Last quarter's number of defaults was the highest in DataQuick's statistics, which go back to 1992.

"Foreclosure activity is closely tied to a decline in home values. With today's depreciation, an increasing number of homeowners find themselves owing more on a property than its market value, setting the stage for default if there is mortgage payment shock, a job loss or the owner needs to move," said Marshall Prentice, DataQuick's president.

The median price paid for a California home peaked at $484,000 last March and declined to $402,000 by the end of 2007, although DataQuick said much of that decline was caused by significant shifts in the types of homes that were sold.

Most of the loans that went into default last quarter were originated between August 2005 and October 2006. The median age was 22 months, up from 15 a year earlier, indicating that the pool of at-risk home loans is getting larger.

On primary mortgages statewide, homeowners were a median five months behind on their payments when the lender started the default process. The borrowers owed a median $11,121 on a median $340,000 mortgage.

On lines of credit, homeowners were a median seven months behind on their payments. Borrowers owed a median $3,379 on a median $56,000 credit line. However, the amount of the credit line that was actually in use cannot be determined from public records.

Last quarter's default numbers were a record in 42 of the state's 58 counties. In Los Angeles County it was 63.5 percent of the first-quarter 1996 peak.

Notices of default are recorded at county recorders' offices and mark the first step of the formal foreclosure process.

On a loan-by-loan basis, mortgages were least likely to go into default in San Francisco, Marin, and San Mateo counties. The likelihood was highest in Merced, San Joaquin and Stanislaus counties.

Of the homeowners in default, an estimated 41 percent emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe, according to DataQuick. A year ago it was about 71 percent. The increased portion of homes lost to foreclosure reflects the slow real estate market, as well as the number of homes bought during the height of the market with multiple-loan financing, which makes "work-outs" difficult.

Trustee's deeds recorded, or the actual loss of a home to foreclosure, totaled 31,676 during the fourth quarter, the highest since DataQuick began tracking trustee's deeds in 1988. Last quarter's total rose 30.8 percent from 24,209 in the previous quarter, and jumped 421.2 percent from 6,078 in fourth quarter of 2006.

In the last real estate cycle, trustee's deeds peaked at 15,418 in third-quarter 1996. The all-time low was 637 in the second quarter of 2005.

There are 7.9 million houses and condos in the state, DataQuick reported.

Where To Start If You're Afraid To Lose Your Home

You're either behind on your mortgage already, or your rate (and payment) are about to jump significantly, or perhaps you're current on your mortgage but you owe more than it's worth and now you need to move. What do you do?

There are an over-abundance of people and companies who will try to tell you what you should do. But who can you trust?

The Homeownership Preservation Foundation (HOPE) is a non-profit organization funded by the financial services industry and Fannie Mae that operates a hotline to help homeowners understand the options available to them and how to work through them. Each HOPE counselor is HUD-approved and has a credit counseling certification. As a non-profit, the services are provided free of charge and without bias of any kind.

HOPE is probably one of, if not the best place to start. The number is 1-888-995-HOPE. It is open 24/7 and has operators that speak English and Spanish. HOPE can also be found on the web at http://www.995hope.org

If you are looking for a local non-profit credit counseling agency, you can also check out http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm and search for local HUD-approved counseling agencies located throughout the country.

If you are in a pickle, do something about it. If you're not sure where to start, and want good quality, unbiased information, this is the best way for you to start.